## Recipe 14.7. Achieving a Certain Future Value## ProblemYou want to put away a sum of money annually at a given interest rate in order to achieve a specific future value to cover a known upcoming expense. You need to know how much to put away each year. ## SolutionUse the ## DiscussionBy way of example, let's assume you need $150,000 in 15 years' time and you want to invest a sum of money annually to raise this money. You're confident you can get an annual interest rate on your investment of 7.6%. How much do you invest each year? You can use the ## See AlsoSee Recipe 14.5 for more information on the syntax for |

## Recipe 14.8. Assessing Net Present Worth## ProblemYou're considering certain equipment upgrades in your lab and you want to perform a net present worth analysis of the projected cash flow streams from these upgrades to determine which option presents the best alternative. ## SolutionYou can use the same techniques discussed in Recipe 14.6 to discount the projected cash flow streams in terms of present values. The option with the highest net present value is the best choice. ## DiscussionConsider this example: you're currently running a numerical simulation laboratory that uses an aging supercomputer to run your simulations. You've forecast cash flows for your simulation services over the next five years. Now you're considering purchasing one of two candidate cluster-based systems that will boost your forecast cash flow over the next five years. These new clusters cost money, though, so you're not sure which one, if either, offers the best choice economically speaking. You need to decide whether to purchase system A, system B, or nothing at all. Let's further assume that system A costs $250,000 and system B, which is somewhat more powerful than system A, costs $310,000. Also, at the end of the fifth year you can sell either system for salvage at 10% of its original cost. You've worked out cash flow forecasts for these two options as shown in Figure 14-2. The Examination of the net cash flow values shown in the ## Figure 14-2. Net present worth exampleDiscounting these cash flows uses the same formulas shown in Recipe 14.6. The formulas in the last three cash flow columns, the discounted columns, are of the form Net present values are represented by the totals for the last three discounted cash flow columns. Examining these totals reveals that purchasing system A is not the best option as originally thought. Instead the Excel offers a built-in function called is a cell range or series of values separated by commas representing the cash flow series. You can use valuesNPV to compute net present values for the cash flows shown in the first three columns of the table in Figure 14-2. Doing so will save you the trouble of constructing the discounted cash flow tables and using the PV function.For example, to compute the net present value of the ## See AlsoCheck out Recipe 14.9 to learn how to compute internal rates of return for the options in this example. |